U.S. short-term T-Bills sold with ZERO yield!

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    Posted: 09 December 2008 05:41 PM

    What does this mean?  So much fear of loosing capital that ZERO yield is good, is what I would expect at the bottom of the market.


    Treasurys higher as bad news creeps in

    Government sells short-term bills to yield zero

    By Deborah Levine, MarketWatch
    Last update: 2:44 p.m. EST Dec. 9, 2008

    NEW YORK (MarketWatch)—Treasurys headed higher Tuesday, helped by a strong bill auction that showed investors purely wanted assurance that they would get their principal back.

    The market reached the highs of the day after the Treasury Department sold $32 billion in four-week bills at a yield of 0%.

    Ten-year note yields fell 7 basis points, or 0.07%, to 2.65%.

    Two-year note yields fell 8 basis points to 0.85%.

    Investors bid $126 billion at the auction, more than four times the amount available. Yields on one-month debt have plunged from about 1.80% in June.

    “I have never seen this before,” said Michael Franzese, head of government bond trading at Standard Chartered. “It’s all about capital preservation for the turn of the year, not capital appreciation.”

    Three-month bill rates also have dropped to near zero, at 0.01%.

    “Risk aversion is still really high,” said Robert Tipp, chief investment strategist at Prudential Fixed Income Management, which oversees more than $200 billion of bonds. “Money funds are being forced to stay [in the shortest maturities] because of a lack of ability to forecast volatility.”

    ...

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    Posted: 09 December 2008 05:53 PM #1

    cramar - 09 December 2008 09:41 PM

    What does this mean?  So much fear of loosing capital that ZERO yield is good, is what I would expect at the bottom of the market.


    Treasurys higher as bad news creeps in

    Government sells short-term bills to yield zero

    By Deborah Levine, MarketWatch
    Last update: 2:44 p.m. EST Dec. 9, 2008

    NEW YORK (MarketWatch)—Treasurys headed higher Tuesday, helped by a strong bill auction that showed investors purely wanted assurance that they would get their principal back.

    The market reached the highs of the day after the Treasury Department sold $32 billion in four-week bills at a yield of 0%.

    Ten-year note yields fell 7 basis points, or 0.07%, to 2.65%.

    Two-year note yields fell 8 basis points to 0.85%.

    Investors bid $126 billion at the auction, more than four times the amount available. Yields on one-month debt have plunged from about 1.80% in June.

    “I have never seen this before,” said Michael Franzese, head of government bond trading at Standard Chartered. “It’s all about capital preservation for the turn of the year, not capital appreciation.”

    Three-month bill rates also have dropped to near zero, at 0.01%.

    “Risk aversion is still really high,” said Robert Tipp, chief investment strategist at Prudential Fixed Income Management, which oversees more than $200 billion of bonds. “Money funds are being forced to stay [in the shortest maturities] because of a lack of ability to forecast volatility.”

    ...

    Here, use my money and promise to give me the same amount back, dokay?

    I think you’re right, Cramar. We’re at the bottom in the T-bill market but I recall that different segments bottom at different points in time throughout the economic cycle.

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    Black Swan Counter: 9 (Banks need money, Jobs needs a break, Geithner has no plan, Cuomo’s grandstanding, .Gov needs a hobby, GS works for money, flash crash, is that bubbling crude?).

    For those who look, a flash allows one to see farther.

         
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    Posted: 09 December 2008 06:14 PM #2

    The only logic I can find for this is that foreign governments see the $US gaining value compared to other currencies.

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    “Once we roared like lions for liberty; now we bleat like sheep for security! The solution for America’s problem is not in terms of big government, but it is in big men over whom nobody stands in control but God.”  ?Norman Vincent Peale

         
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    Posted: 09 December 2008 07:37 PM #3

    Play Ultimate - 09 December 2008 10:14 PM

    The only logic I can find for this is that foreign governments see the $US gaining value compared to other currencies.

    I think you mean foreign investors in general, not just foreign governments.

    Americans tend to bitch and moan about their government and economic mismanagement, and then are surprised when they see the dollar appreciate. Just look at Italy….

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    Tightwad.

         
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    Posted: 09 December 2008 09:03 PM #4

    awcabot - 09 December 2008 11:37 PM
    Play Ultimate - 09 December 2008 10:14 PM

    The only logic I can find for this is that foreign governments see the $US gaining value compared to other currencies.

    I think you mean foreign investors in general, not just foreign governments.

    Americans tend to bitch and moan about their government and economic mismanagement, and then are surprised when they see the dollar appreciate. Just look at Italy….

    I live under a dark and heavy rock. What’s going on in Italy?

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    Black Swan Counter: 9 (Banks need money, Jobs needs a break, Geithner has no plan, Cuomo’s grandstanding, .Gov needs a hobby, GS works for money, flash crash, is that bubbling crude?).

    For those who look, a flash allows one to see farther.

         
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    Posted: 09 December 2008 11:29 PM #5

    Interesting follow-up commentary by ElliottWave International:

    T-Bills Are Telling You What The Media Won’t

    Who, exactly, was crazy enough to purchase securities with a yield of zero (or less)?

    By Robert Folsom
    Tue, 09 Dec 2008 17:30:00 ET

    The sale of Treasury Bills is rarely newsworthy, given that it’s the one market where the notion of buying and selling “action” really doesn’t fit (Treasuries are the original widows & orphans fund, after all).


    But, Treasuries made big news today, even if the news stories themselves didn’t exactly get it right. The nation’s largest financial newspaper ran a headline which said “T-Bill Yields Fall to Historical Lows,” when in truth the yield on three-month Treasuries actually fell BELOW ZERO during some of the trading session. That literally means lenders were paying the borrower+ to hold the money.


    And who, exactly, was crazy enough to purchase securities with a yield of zero (or less)? Umm, I don’t have any names, but that’s really the wrong question. The better one to ask is: Was the $32 billion supply of ZERO-YIELD securities available at today’s Treasury auction enough to meet the demand?


    Well, I think the answer is “no”...

    ...Since the bids for that supply amounted to $126 billion.


    Now, one could say that news stories about this were trying to describe the indescribable, and perhaps that’s true. Yet I am aware of a certain word that would at least help to offer a fitting description, although this word was absent in all four news accounts that I read. I’ll put it in rhetorical terms:


    If accepting zero yields just to get back your principle isn’t deflation, then I don’t know what is.


    That’s right. In a deflationary environment, cash is king—even (or especially) when the media fails to see this simple fact. When traditional investment vehicles are losing value, it’s not hard to conclude you’re better off than a lot of other folks just by getting back your principle.


    Deflation isn’t theoretical any longer—and on a day when yields fall below zero, I’d say that phrases like “creeping threat” don’t reflect how real the risk truly is. It’s here. Now.

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    “Whatever happens in the stock market today has happened before and will happen again.”    - Jesse Livermore

         
  • Posted: 10 December 2008 12:22 AM #6

    If money for nothing I think it means the “Chicks for free”  wink

         
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    Posted: 10 December 2008 05:04 PM #7

    An NYT’s article spelling out what this could mean.

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    Posted: 10 December 2008 05:18 PM #8

    Mace - 10 December 2008 09:04 PM

    An NYT’s article spelling out what this could mean.

    Thanks Mace. Good article:

    ?The last time this happened was the Great Depression, when people are willing to accept no return on their money, or possibly even a negative return,? said Edward Yardeni, an independent analyst. ?If people are so busy during the day just protecting the cash they have, it?s not a good sign.?

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    “Whatever happens in the stock market today has happened before and will happen again.”    - Jesse Livermore

         
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    Posted: 10 December 2008 06:26 PM #9

    Why buy T-Bills when you get the same result throwing your cash under your mattress and burying it in the backyard?
    This, as stated, is a sign of global deflation. But it also is a global sign of the strength of the US economy and $$.

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    “Once we roared like lions for liberty; now we bleat like sheep for security! The solution for America’s problem is not in terms of big government, but it is in big men over whom nobody stands in control but God.”  ?Norman Vincent Peale

         
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    Posted: 10 December 2008 06:38 PM #10

    Play Ultimate - 10 December 2008 10:26 PM

    Why buy T-Bills when you get the same result throwing your cash under your mattress and burying it in the backyard?
    This, as stated, is a sign of global deflation. But it also is a global sign of the strength of the US economy and $$.

    Because by burying your money, a mole may chew on it; or keeping it under your mattress, it may get stolen or lost in a fire.

    What we, as investors, should be looking out for is a trend. Will savers keep on accepting negative returns on their deposits or is this just a year end fluke?

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    Tightwad.